30 hours free childcare: term time only workers assessment of income

These three cases raised issues concerning the conditions of eligibility for 30 hours of free childcare. CPAG represented two of the claimants (JS and LG). All three claimants had been refused access to the 30 hours of free childcare by Her Majesty’s Revenue and Customs (HMRC) which had determined they did not meet the eligibility conditions in that the claimants were not regarded as having sufficient earnings to qualify.

Each of the claimants appealed, as they had been advised by HMRC they could do, to the First-tier Tribunal (Social Entitlement Chamber), and in each case the appeal was allowed. HMRC then appealed in each case to the Upper Tribunal. Upper Tribunal Judge Gray determined HMRC's appeal on 09 September 2021. The judgment deals with the following points:

Jurisdiction

At the time the appeals were brought, then the right of appeal was actually to a First-tier Tribunal within the Tax Chamber and not the Social Entitlement Chamber. Although that had not been the intention and the legislation had, subsequent to these appeals, been amended to ensure appeals on 30 hours free childcare decisions were heard in the Social Entitlement Chamber, Judge Gray determined that this meant the Tribunal in each of the cases had not had jurisdiction to determine the appeal before it. Nonetheless, because in each case the issue had now become academic as between the parties, Judge Gray declined to set the decisions aside and remit them to be reheard.

This means (as explained by Judge Gray at §5) that her decision in respect of the other issues is not binding on HMRC or future First-tier Tribunals dealing with appeals – it is not clear whether HMRC will accept what was said and change its practice in deciding claims but if it did not, First-tier Tribunals are highly likely to accept Judge Gray’s analysis of the issues.

Calculation issue

LG and EL were both “term time only” workers. This meant they worked for about 38 weeks a year but were paid their salary for that work as a fixed amount in each of the 12 months of the year. In order to qualify for the 30 hours free childcare they needed to count as in “qualifying paid work” which was defined as being in work such that the “expected income from the work” in the 3 month period for which they had claimed was higher than or equal to the relevant threshold (which equated to having a job at the minimum wage for at least 16 hours per week). HMRC held that LG and EL did not meet that threshold if one looked at the wages they received in each of their relevant 3 month periods.

Judge Gray however accepted submissions from CPAG that the correct way to assess their earnings for the purposes of regulation 5 of the The Childcare (Early Years Provision Free of Charge) (Extended Entitlement) Regulations 2016 (SI 2016/1257) (“the 30 hours childcare Regulations”) was in each case by looking at the income they expected to receive from the work they did in that period rather than by looking merely at what was paid into their bank accounts by their employers in that period. Judge Gray finds that the purpose of the scheme is to help low income families with childcare responsibilities to work. She then states:

49. Excluding someone from entitlement who works at least the minimum hours at the minimum wage or slightly above that, and who would qualify for various periods of childcare when they needed it but for the way in which they are paid is to undermine the basis of the scheme, and if there is a purposive construction which supports what is clearly the objective then it is to be preferred.

50. A construction in which HMRC must accept as final an employer’s approach of dividing the money actually earned during (approximately) only 38 weeks throughout the year also ignores the principal behind the calculation of the lower income threshold. The threshold figure is based upon a person working at least 16 hours each week at the minimum wage. The way in which these claimants (and many others) are paid dilutes the hours worked as calculated on a weekly basis throughout the year.

Conclusion on the calculation issue

51. The approach advocated by HMRC would defeat the purpose of the scheme itself, which is to provide childcare for those who work at least a minimum number of hours at the minimum wage.

52. The convenience for an employer, and perhaps an employee, of regular payments over the year is understood; however, that regularity of income does not reflect the need for childcare (which is synonymous with the actual work done) in relation to the thirteen week period under consideration.

Judge Gray’s conclusion should help other term time only workers to establish entitlement to 30 hours free childcare:

“45. […] this will, for many term time workers, result in three quarters of the year during which they are entitled to the childcare, and one quarter in which they are not. That chimes with the purpose set out in the Childcare Act as being childcare provided so that a parent can work”

Prospective decision issue

HMRC did not argue that the First-tier Tribunal had been wrong in how they calculated JS’s income. Instead another part of the decision of the tribunal was attacked.

The Tribunal had purported to state that JS was entitled to the 30 hours free childcare from when he had originally applied for it.

The parties agreed that was wrong: reg. 15 of the 30 hours childcare Regulations provides for Tribunal decisions on such matters only to have effect from when the Tribunal gives its decision: after all a nursery place cannot be provided retrospectively.

However, Judge Gray made two important further points:

• Firstly, that does not render appeals pointless in that they may affect ongoing entitlement and also give access to HMRC’s compensation scheme so as to allow a parent to be compensated for expenses of childcare they incurred during a period when free childcare should have been provided (which is discussed at §§77-79).
• Secondly, Judge Gray accepts that in a case where a parent might be unable to afford childcare without access to the scheme and therefore be unable to work it may be that the First-tier Tribunal must deal with such a case swiftly: §67 and §75.